Costello’s latest big idea stuns SuperRatings conference

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By Greg Bright

Peter Costello has always had big ideas. After all, he introduced the GST when predecessors John Howard and John Hewson failed. “$50 billion. Now that’s a tax!” he proudly told the SuperRatings conference two years ago. He also launched the Future Fund, of which he is now chair. At this year’s SuperRatings conference he floated another big idea.

The former Treasurer, Australia’s longest serving, proposed in his prepared speech at the SuperRatings/Lonsec Day of Confrontation conference prior to their annual awards night in Melbourne on October12, that one way around the political imbroglio over who should manage the default funds of APRA-regulated super funds is to give them all to the Government – or a government agency such as the Future Fund – to handle.

He added that under existing rules the Future Fund could only manage Commonwealth Government money. But, of course, rules can be changed.

“Let me say I believe that, subject to safeguards, people should be able to choose who manages their super,” Costello told the conference. “But the reality is in Australia there is a large cohort of people who don’t choose. Their money goes into default funds. They get allocated to an industry or an employer fund. They make no choice over the investment profile.

“Now, I am not pointing the finger at anybody, because you’ve got to remember that I was in government for nearly 12 years, so if you want to point the finger, you can point it at me.

“This is my personal view: instead of the Government arbitrating between industry funds and private funds, there is a fair argument that compulsory payments, the so-called default payments, should be allocated to a national safety net administrator, let’s call it the Super Guarantee Agency. It would be a not-for-profit agency which would set up its own investment board like the Canadian Pension Plan. We would call it the SGIA, the Super Guarantee Investment Arm.”

Michael Bargholz

Michael Bargholz

He said the SGIA could contract out the management, “or the Future Fund Management Agency could do it… Default contributions are at the moment spread between many funds, allocated to many different products, many of whom use the same manager and all of whom pay fees to do so. Those fees could be reduced if that money was pooled; if there was only one default fund making large allocations and using market power to drive down costs.”

According to APRA figures, just over 50 per cent of money managed by APRA-regulated funds is in the default options. This indicates that at least $300 billion could be up for management by one government agency, if the Costello proposal was adopted. Perhaps an unintended consequence is that most of this would have to be invested offshore, because of capacity constraints, and probably a lot would go passive, to obtain a reasonable return.

Steve Merlicek

Steve Merlicek

ASFA chief executive, Martin Fahy, responded on October 13, suggesting significant problems with the proposals. He said: “In the context of the broader public debate around the efficiency and competitiveness of the superannuation system, it is almost inconceivable that anyone would countenance a government monopoly delivering the best retirement outcomes for Australians.

“What is being proposed is in essence the nationalisation of private, individual superannuation savings. The Future Fund effectively operates as the Australian Government’s wholesale investment manager. However, it lacks the required governance framework and administrative capabilities needed for it to operate in a superannuation context.

“Broadening the role of the Future Fund – from managing money to meet public liabilities to also managing private superannuation assets – would represent an erosion of the trustee and investment governance frameworks critical to the delivery of member returns.”

About 400 people attended the conference and/or the awards dinner, most of them either super fund executives or fund managers. Neither group could be expected to applaud Costello’s latest big idea.

Meanwhile, Sunsuper took out the major ‘Fund of the Year’ award and ‘Pension of the Year’ award. Other major award winners were QSuper for ‘Choice Super of the Year’ and CareSuper for ‘MySuper of the Year’.

In the major innovation award category, of which there were several, David Bell, the CIO of Mine, Wealth + Wellbeing, won the coveted BT Investment Management Retirement Innovation Award.

Michael Bargholz, BTIM’s chief executive, Australia, who was one of the judges on this award’s separate judging panel, said that the recognition of such innovation, and especially when made in collaboration with the industry, in something as crucial as providing retirement incomes, was very important.

Bell worked with his inhouse team and many outside consultants and experts to develop a formula which can be used by the whole industry to calculate retirement outcomes and options.

Another popular choice of winner was Steve Merlicek, the recently retired former CIO of IOOF and, before that, Telstra Super, who took out the Lonsec ‘Icon’ award.

And Jeff Bresnahan, the founder and executive chair of SuperRatings, now a part of the Lonsec Fiscal Group of which he remains a major shareholder, announced via video the new chief executive of SuperRatings, Kirby Rappell. He replaces Adam Gee who returned to consulting at KPMG in July. Rappell is currently the general manager, research, for the ratings firm.

The full list of winners is:

SuperRatings Awards

  • Fast Mover Award:  Australian Ethical Super
  • Rising Star Award:  Statewide Super
  • Best New Innovation Award:  VicSuper Beeline
  • Infinity Award:  Local Government Super
  • Career Fund of the Year Award:  HESTA
  • MySuper of the Year Award:  CareSuper
  • Choice Super of the Year:  QSuper
  • Pension of the Year Award:  Sunsuper
  • Fund of the Year Award:  Sunsuper

BT Investment Management Retirement Innovation Award

  • David Bell—Chief Investment Officer, Mine Wealth + Wellbeing

Lonsec Awards

  • Icon Award:  Steve Merlicek—recently retired CIO of IOOF Investment Management
  • Innovation Award:   Bennelong Twenty20 Australian Equities Fund
  • Rising Star Award:  Watermark Market Neutral Trust
  • Disruptor of the Year Award:  iShares Enhanced Strategic Model Portfolios

SuperRatings SR50 Performance Awards

  • SR50 Cash Index Award:  Club Plus Super—Cash Option
  • SR50 International Shares Index Award:  OnePath Integra—OnePath Global Shares
  • SR50 Australian Shares Index Award:  Catholic Super—Australian Shares
  • SR50 Capital Stable (20-40) Index Award:  VicSuper FutureSaver—Capital Stable Option
  • SR50 Growth (77-90) Index Award:  CareSuper—Growth
  • SR50 Balanced (60-76) Index Award:  HOSTPLUS—Balanced
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